Oil Rises as U.S. Consumer Confidence Improves

By Moming Zhou -
Aug 17, 2012

Oil rose for a fourth day on reports
as U.S. consumer confidence improved, signaling the economy is
recovering, and rising tension in the Middle East.

Futures capped a third weekly gain as the Thomson
Reuters/University of Michigan consumer sentiment index beat
expectations and the Conference Board’s leading economic
indicators climbed more than forecast. Prices also gained as
Hezbollah threatened to retaliate if Israel attacked Iran and
security concern grew in Syria and Lebanon.

“The economic data are getting better,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy
Inc., which manages more than $20 billion in companies’ annual
energy spending. “You have a lot of tension ratcheting up in
the Middle East and oil’s been having a rally.”

Oil for September delivery rose 41 cents, or 0.4 percent,
to $96.01 a barrel on the New York Mercantile Exchange, the
highest settlement since May 11. The price is up 9 percent in
August and 13 percent in the third quarter.

Brent crude for October fell $1.56, or 1.3 percent, to
settle at $113.71 a barrel on the London-based ICE Futures
Europe exchange after reaching the highest level since May
yesterday. Brent’s premium to October West Texas Intermediate,
the New York benchmark, narrowed to $17.39 from $19.38.

“The trend for higher prices in Brent still remains in
place because producers have to go through the maintenance
season over the course of August and September,” said Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity
markets strategy. “This is the slight retrenchment after a
period of strong gain.”

Stronger Outlook

Futures in New York climbed as the Thomson
Reuters/University of Michigan preliminary August index of
consumer sentiment increased to 73.6, the highest level since
May, from 72.3 the prior month. The gauge was projected to be
little changed at 72.2, according to a Bloomberg survey.

The Conference Board’s gauge of the outlook for the next
three to six months increased 0.4 percent last month after a
revised 0.4 percent drop in June, the New York-based group said
today. Economists projected the gauge would rise by 0.2 percent.

The Standard & Poor’s 500 Index extended its weekly gain to
0.9 percent. The index has gained for six weeks in a row.

“There is some upside momentum and what the market is
trying to do is expand the trading range,” said Addison Armstrong, director of market research at Tradition Energy in
Stamford, Connecticut. “Equities being strong are kind of
keeping oil higher.”

Mideast Tension

Tension in the Middle East rose as Hezbollah’s chief,
Hassan Nasrallah, said Iran’s response to an attack by Israel
would be “huge.” Hezbollah, a militant Islamist group close to
Iran, is classified as a terrorist organization by the U.S.

“People are hesitant to be short with rhetoric in the
Middle East heating up,” said Phil Flynn, senior market analyst
at the Price Futures Group in Chicago.

The Security Council decided yesterday to let the mandate
for its unarmed observer team in Syria expire, with operations
scheduled to “fade out” beginning Aug. 19, French Ambassador
to the UN Gerard Araud said. The decision marked the latest
setback in UN efforts to broker a cease-fire and open talks
between President Bashar al-Assad’s government and rebels.

Lebanon Warning

The U.S. Embassy in Lebanon has warned its citizens of “an
increased possibility of attacks,” including kidnappings and
the potential for an upsurge in violence.

The Middle East was responsible for 33 percent of global
oil production last year and held 79 percent of proved reserves,
according to BP Plc (BP/)’s Statistical Review of World Energy,
released in June.

Oil may fall next week, a Bloomberg survey showed. Fifteen
of 27 analysts, or 56 percent, forecast crude will decline
through Aug. 24.

Electronic trading volume on the Nymex was 443,571
contracts as of 4:05 p.m. in New York. Volume totaled 521,076
contracts yesterday, 5.4 percent below the three-month average.
Open interest was 1.49 million.